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Investing in Blue Chip Stocks

By Jon Quast – Updated Aug 23, 2022 at 6:04PM

Blue chip stocks are the stocks of well-known, high-quality companies that are leaders in their industries. These companies have stood the test of time and are respected by their customers and their shareholders.

Graphic showing the characteristics of blue chip stocks and logos of famous blue chip stocks like coca-cola, walmart, disney and more.ip stocks
Source: The Motley Fool

Blue chip companies have solid business models and impressive track records of returns for investors. These returns often include regular and growing dividend payments, making blue chip stocks among the most popular for conservative investors. But even more risk-tolerant investors should consider buying blue chip stocks to better diversify their portfolios and provide some stability during turbulent stock market conditions.

So, in short, what are blue chip stocks? A blue chip stock is defined as a security that represents an equity position in a company that possesses most of the following characteristics:

  • An industry leader with a dependable business model.
  • A proven track record and strong reputation with consumers and shareholders.
  • A history of delivering strong returns over the long term.
  • Pays dividends to shareholders and regularly increases its payouts.

Even if you've never invested in the stock market, you'll recognize the names of many top blue chip stocks. These large-cap companies provide products and services that are part of daily life for billions of people across the globe. Here are some of the best blue chip companies on the market:

1. Apple

Apple (NASDAQ:AAPL) is one of the largest companies in the world, and it has pioneered advancements in the technology sector throughout its history. The company innovated with its Macintosh computers in the 1980s, made media portable with its iPods in the early 2000s, and its iPhones, iPads, and Apple Watches are ubiquitous today. In a world where consumers flock to the latest tech fads, Apple’s products engender notable loyalty from its customer base.

Apple also earns recurring revenue through its services, which include its iTunes, App Store, and streaming television businesses. Apple's market capitalization climbed above the $1 trillion mark in 2018 and then up to an unprecedented $2 trillion in 2020. On January 3, 2022, Apple once again made history by briefly climbing about the $3 trillion mark, though its market cap has declined along with many other NASDAQ companies in early 2022. Yet today, Apple remains the largest public company -- and the business is still growing.

2. Berkshire Hathaway

Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) is a major player in the insurance industry, offering various lines of commercial and personal insurance through subsidiaries GEICO and Gen Re. But Berkshire also owns a diverse set of businesses such as restaurant chain Dairy Queen, railroad giant BNSF, and its Berkshire Hathaway Energy utility company. With such a broad range of businesses, the company has a reputation for safety and security, as well as consistent performance.

It’s important to note that Berkshire Hathaway is the only blue chip stock on this list that doesn’t pay a dividend. CEO Warren Buffett has one of the most impressive track records of market-beating returns in history and prefers to invest the company’s cash in lieu of paying dividends. That strategy has worked out great for shareholders so far.

3. Coca-Cola

Coca-Cola (NYSE:KO) has been a leader in the beverage industry for more than a century as its namesake soft drink spawned a global empire. Yet Coca-Cola has also changed with the times and now provides a much broader array of products, including juices, sports drinks, and bottled water tailored for more health-conscious consumers.

Coca-Cola particularly stands out for increasing its dividend. Its streak of consecutive annual dividend payment increases dates back to the early 1960s, a track record placing it among the top 10 dividend stocks on the market.

4. Johnson & Johnson

Johnson & Johnson (NYSE:JNJ) is well-known for its popular consumer products, including baby shampoo, Band-Aids, and Tylenol pain reliever. But J&J is a true healthcare giant, making a wide array of medical devices to help doctors and other medical professionals perform life-saving procedures. Johnson & Johnson also has a vast pharmaceutical business and produces drugs such as the arthritis treatment Remicade, prostate cancer drug Zytiga, and psoriasis drug Stelara.

J&J is splitting into two companies by November 2023, and this is worth watching. One company will focus on consumer health products, considered the weaker segment of J&J’s business. The other will contain its highly regarded pharmaceuticals and medical devices segment.

5. American Express

Financial giant American Express (NYSE:AXP) is another blue chip stalwart to consider. It’s both a credit card company and a payments network. Its main revenue generators include credit card fees and transaction processing fees. The company is poised to increase both revenue streams with new users and higher transaction volume. It’s more than 170 years old, but it’s apparently staying relevant: More than half of new card accounts in 2021 were millennial and Gen Z consumers -- an encouraging sign.

American Express’s management believes it can expand profits at a double-digit pace in years to come, and it also plans to pay out roughly a quarter of its profits as shareholder dividends. It’s already raised its dividend by 20% in 2022 (as of June 2022). Ongoing earnings growth should lead to additional increases in future years.

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Bigger list of blue chips

Investors have a sizable number of blue chip stocks to choose from. Here’s a list of 20 other top blue chip stocks:

  1. AbbVie (NYSE:ABBV)
  2. Nike (NYSE:NIKE)
  3. Lockheed Martin (NYSE:LMT)
  4. Honeywell International (NASDAQ:HON)
  5. Procter & Gamble (NYSE:PG)
  6. Mastercard (NYSE:MA)
  7. JPMorgan Chase (NYSE:JPM)
  8. Walmart (NYSE:WMT)
  9. Microsoft (NASDAQ:MSFT)
  10. Caterpillar (NYSE:CAT)
  11. UnitedHealth Group (NYSE:UNH)
  12. Starbucks (NASDAQ:SBUX)
  13. Oracle (NYSE:ORCL)
  14. Northrop Grumman (NYSE:NOC)
  15. McDonald’s (NYSE:MCD)
  16. Home Depot (NYSE:HD)
  17. Kroger (NYSE:KR)
  18. Merck (NYSE:MRK)
  19. Intel (NASDAQ:INTC)
  20. Goldman Sachs (NYSE:GS)

Related investing topics

Investing in blue chip companies

Blue chip stocks are smart choices for investors of all kinds. Beginning investors are likely familiar with the products and services of blue chip companies. Familiarity with a company makes stock buying more comfortable, and it’s exciting to become a partial owner of a business you know. Meanwhile, long-time investors will have seen blue chip stocks rise to the top over the long haul, outlasting their weaker rivals and finding ways to stay relevant and keep growing even as their industries change.

Investors of all experience levels can appreciate the stability and reliability that blue chip businesses give to shareholders. Many of these companies pay substantial dividends and have payout growth streaks that have earned them a spot among the illustrious ranks of the Dividend Aristocrats and Dividend Kings.

Hands-off investing with blue chip funds

Investors may also want to consider exchange traded funds (ETFs) and mutual funds. These blue chip funds bundle multiple blue chip stocks into a single security, offering a simple way to diversify across many high-quality stocks. These investment vehicles also tend to be less volatile than individual stocks, which can be particularly appealing for people who are retired or nearing retirement. Blue chip funds can also be a good fit for younger investors who are seeking the defensive advantages of diversification or who don’t have the time needed to adequately research individual stocks.

Blue chips in a well-balanced portfolio

If you're looking for maximum growth in your stock investments, you'll also want to go beyond blue chip stocks to look at some up-and-coming small-cap stocks of innovative young companies seeking to disrupt their larger rivals. These high-growth upstarts aim to be the blue chip stocks of tomorrow.

However, just about every investor can benefit from having a portion of their portfolio invested in blue chip stocks. It doesn't have to be a set percentage; different investors will have different viewpoints about how much risk they want to assume. But the more you want to preserve and protect the money you have invested in the stock market, the more attractive blue chip stocks will be as you try to meet your objectives and reach your long-term financial goals.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Jon Quast has positions in Mastercard and Starbucks. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway (B shares), Goldman Sachs, Home Depot, Intel, Mastercard, Merck & Co., Microsoft, Starbucks, and Walmart Inc. The Motley Fool recommends Johnson & Johnson, Lockheed Martin, and UnitedHealth Group and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2023 $57.50 calls on Intel, long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), short January 2023 $57.50 puts on Intel, short March 2023 $130 calls on Apple, and short October 2022 $85 calls on Starbucks. The Motley Fool has a disclosure policy.

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